Midtown Escrow and Exchange, LLC

– Tax Deferred Exchange


Investor purchased a rental property for $50,000 in 1998 (“Relinquished Property”). Investor wants to purchase another rental property in 2004 (“Replacement Property”) and wishes to sell Relinquished Property to obtain sufficient funds to purchase Replacement Property. Relinquished Property is now worth $100,000 and Investor has a contract to sell Relinquished Property for that amount (net proceeds). Replacement Property is being purchased for $100,000. Investor may sell Relinquished Property himself (without the benefit of a tax deferred exchange), purchase Replacement Property and pay taxes on the difference between the sale price and basis in Relinquished Property. Or, Investor may, through the use of a tax-deferred exchange, sell the Relinquished Property, have a Qualified Intermediary hold the proceeds of that sale and purchase the Replacement Property, thus deferring taxation on the gain from the sale of the Relinquished Property.

Non-1031 Exc. 1031 Exc.
Proceeds of Property Sale $100,000 $100,000
Basis in Property $50,000 $50,000
Gain Recognized $50,000 $50,000
Tax (based 15% tax rate) $7,500 $0
Tax Deferral Savings $0 $7,500
Cash available for Reinvestment $92,500 $100,000

Midtown Escrow and Exchange, LLC is not a legal or tax advisor and encourages all persons interested in tax deferred exchanges to consult with their legal and tax advisor.